BIDU Stock: The Bull Awakens
I am bullish on Baidu Inc (ADR) (NASDAQ:BIDU) stock, and there are a number of reasons why, but nothing is more compelling than the chart pattern breakout that has just occurred. As a trader and analyst, I look for patterns in prices that can give me further insights into the direction of the current trend and, in some cases, these patterns are kind enough to provide me with a potential price target. It is for this reason alone that I like BIDU stock.
Some find it hard to believe that any information can be gathered from the stock chart, as efficient market hypothesis dampens the prospects that any such edge can be garnered from historical price data. Traders have been using charts successfully to trade positions longer than the lifetime of most indices, and new developments in behavioral finance debunk many of the standing points of efficient market hypothesis. Slowly but surely, technical analysis is once again gaining some acceptance.
The following Baidu stock chart below illustrates the pattern breakout I am referring to.
The pattern highlighted above is a symmetrical triangle, and these patterns are powerful indicators.
A symmetrical triangle, by definition, is a consolidation pattern that contains two converging trend lines. One line represents resistance and the other represents support. The fact that support and resistance levels are converging makes this pattern a zone of indecision as the prior move higher is digested. Symmetrical triangles can break in either direction but, on average, the trend resumes in the direction it began prior to the formation of the triangle. These patterns are particularly explosive because, as the pattern progresses, it gathers momentum and speed.
Symmetrical triangles also provide a potential price objective and help define my risk. These factors allow my strategies to become fully systematic, as I can target a level to exit prior to initiating any position. The symmetrical triangle on BIDU stock projects a target price of $280.00, and represents a potential return of 42.8% from current levels. I can also manage my risk using the triangle.
If the Baidu stock price would fall below point 5 on the symmetrical triangle in the above chart, this would give me reason to believe the pattern has failed, and that would be a reason to exit.
The following chart illustrates further bullish developments in BIDU stock.
Chart courtesy of StockCharts.com
The focus of the chart above is the lower panel marked “MACD.” Moving average convergence divergence (MACD) is a simple and effective trend-following momentum indicator. Signal line crossings are used to distinguish between bullish and bearish signals. When the MACD crosses in a bullish direction, this indicator is signalling that the bulls are now in control and that price momentum favors price appreciation.
I have highlighted two such instances in which a monthly MACD cross coincided with an impulse wave. The signal has been a good predictor of a run higher in price, and the evidence is difficult to refute based on the Baidu stock chart above.
Currently, The MACD lines are converging and a bullish cross is now possible. The bullish breakout of the symmetrical triangle increases the odds that a cross is now imminent. The pattern and the signal confirm the bullish bias, and they reaffirm that a new impulse wave is in its infancy.
Each subsequent impulse wave has taken BIDU Stock to a new all-time high. I see no reason why this trend will change anytime soon, and thus my expectations are at minimum that BIDU stock will test the previous high and eventually forge a new all-time high.
The Bottom Line on Baidu Stock
I like Baidu stock for a number of reasons, but nothing is more compelling than the pattern breakout that has just occurred. I believe that Baidu stock is on track for another impulse leg that could send BIDU stock to new highs. I will continue to hold this view until the charts give me reason to change my current stance.
